This week, we are featuring two new Monday Maps which pull data from a Fiscal Fact we released last week, “Individual TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Rates Impact Business Activity Due to High Number of Pass-Throughs,” and look at the top marginal tax rates for sole proprietorships and S-corporations throughout the states. In his study, Kyle Pomerleau explains that more than 30 million pass-through businesses file their taxes at the individual rate, and why a large percentage of those businesses have a marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. exceeding 40 percent.
It is important to remember what we are looking at with this Monday Map. We are not examining the effective rates of businesses in the top bracket, but rather, the top marginal tax rate on (S-Corporations/Sole Proprietorships) in each state. A “marginal” rate is the amount that is taxed of the next dollar of income earned by pass-through businessA pass-through business is a sole proprietorship, partnership, or S corporation that is not subject to the corporate income tax; instead, this business reports its income on the individual income tax returns of the owners and is taxed at individual income tax rates. es in each state’s highest tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. . These rates reflect the sum of federal, state, and local income taxes (minus the state and local tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. ); self-employment taxes; and the limitation on itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s.
All maps and other graphics may be published and re-posted with credit to the Tax Foundation.
Click on maps to enlarge them. Click here for previous maps.
For more information about how individual tax rates affect the majority of businesses in the U.S. economy, click here.Share